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Not an easy job for the central banker. Recently released GDP data showed a sliding y-o-y growth for private consumption expenditure, an indication that economic activity remains slow. On the other hand, the inflation surprise has brought to the fore the need for the RBI to tighten monetary policy. The government has also joined the RBI in an attempt to contain inflationary pressures in the economy. We see the RBI extending its 40bps repo hike of May with a 35bps increase in June, followed by 25bps each in August and September. By this time, we expect the global growth to have softened enough to pull down commodity prices and thus provide some comfort to the domestic inflation cycle too. We thus factor in the RBI to press the pause button again after a 15bps insurance hike in the repo rate in December and analyze the implications of its rate hike cycle of 140 bps on growth before taking any further decision.
